PNG LNG transition from Construction to Production : Speech

Good morning. It is an honour to
be invited to speak at this Conference once again.

As you will all be aware, 2014
has been an incredible year for Papua New Guinea as the PNG LNG Project moved
from construction to production, with over 45 cargoes now safely dispatched.

The main subject of my talk today
is the transition from the construction phase of the Project into production.

I have to say this is not so much
a switch from one phase to the next but rather it is a journey.

It’s a journey we began years ago
when this project started, and it’s a journey that will continue for many years
to come.

To deliver this Project we have
been working closely with our co-venture partners – Oil Search, NPCP, Santos,
JX Nippon Oil and Gas Exploration, Mineral Resources Development Company and
Petromin – along with the PNG national and local governments, key contractors
and the communities near which we operate.

Without the support of these
stakeholders, what we have achieved would not have been possible.

These next few slides illustrate
some of our achievements, although it is difficult to convey a sense of the magnitude
of challenges faced through these photos alone. The end product is a set of
world class facilities, something we are very proud of and testament to the
skills, creativity, persistence and courage of our Project Management Team and
contractors.

We installed hundreds of kilometres
of steel pipe and two modern gas processing facilities into one of the most
remote, rugged and socially complex locations in the world, and did so in an
environmentally and socially responsible manner.

However what is important is not
just the physical assets that were built; we also committed to building
capacity in Papua New Guinea and creating a positive Project legacy.

To this end, we developed and
implemented a National Content Plan set on three pillars – Workforce
Development, Supplier Development and Strategic Community Investments.

During construction we employed
more than 9,000 Papua New Guineans and delivered more than two million hours of
training through some 13,000 training courses. Watching our Papua New Guinean
workforce develop has been inspiring. They have a thirst for learning and given
an opportunity to do so, invariably exceeded our expectations.

We have worked with local
suppliers, which has resulted in an in-country spend of almost 11 billion Kina
including more than 2.7 billion kina with landowner companies.

We have invested more than 650
million Kina in community programs and infrastructure, with a particular focus
on education.

We delivered the Project months
ahead of schedule and within our 2012 revised budget – a real accomplishment
that sets us apart from many other gas projects.

Importantly, we have demonstrated
what can be achieved in Papua New Guinea, and have set the stage for future investments
in this resource-rich nation.

Reaching our early production
milestone generated an almost indescribable feeling of excitement throughout
the company.

The departure of that very first
cargo on May the 25th was an historic moment that many of us, myself
included, will never forget.

The construction phase took over
four years, and the scope and progress was visible to all. Preparations for
start of production were far less visible, but have been underway since the
start of the Project’s detailed design and continued through startup.

From the outside it may have seemed
as if the contractors completed the design and constructed the facilities, handed
the facilities and manuals over to Operations, and then the Operations team simply
hit the start button and the process started. That could not be further from
the truth.

We established a team – Building
the Production Organisation, or BTPO – dedicated to ensuring the operability of
the plant and equipment, and ensuring that the organisation and processes were
all in place and functioning to ensure both a safe startup and ongoing safe
operations.

Our objectives were to develop a
safe, efficient production facility with minimum life cycle costs; to develop a
multifunctional team with the necessary skills and experience to safely and
efficiently operate the new facilities from day one; to ensure field support
systems were in place and functioning for startup; and to ensure incorporation
of the company’s standards and regulatory requirements.

Some of the keys to success
included starting early in the design life, by embedding maintenance and
operations personnel in project design offices.

Our BTPO process is very
comprehensive. Based on ExxonMobil’s extensive operations experience and
incorporating lessons learned from other projects, we identified all of the deliverables
required, including operating procedures and equipment strategies, reference
manuals, business systems, spare parts lists and post-startup contracts, and
ensured we were ready. The devil is in the detail and we worked the details
hard.

Clearly, a highly skilled
workforce is needed to operate and maintain the safety and integrity of
facilities. Given that this was the first of its kind in the country the
training load was enormous.

Since the process facilities were
still under construction, we developed and used sophisticated process simulators,
specifically developed to mimic the control panels at Hides Gas Conditioning
Plant and the LNG Plant. Simulator Training was also used for the PNG Ports
pilots who would be responsible for safely bringing the huge LNG tankers to
berth in Caution Bay.

As just one aspect of the two
million training hours we delivered, we trained almost 140 Papua New Guinean
Operations and Maintenance technicians, who are now gaining on-the-job
experience and learning from highly experienced expatriates at the LNG and
Hides Gas Conditioning Plants.

You can see two of those trainee
technicians in this photo, turning on the first well at Hides, an important
moment in our history.

We have begun recruitment for a
third intake of Operations and Maintenance trainees who will commence training
in 2015. Like their predecessors, these trainees will complete Basic Skills,
Advanced Skills and on-the-job training.

Safety for us is a core value,
not just a priority, with no job started if we could not determine how to
complete it without anybody getting hurt. Our Operations teams comprise a mix
of experienced process employees from ExxonMobil facilities around the world,
and freshly trained young Papua New Guineans with no previous operations
experience. We systematically assessed the hazards and risks associated with each
task, and we assigned additional personnel to act as mentors. For high risk
tasks, such as line handling to tie up the LNG tankers, we brought in experts
for several months to train and coach PNG Ports staff. And we trained and drilled to ensure we were
ready to deal with emergencies.

We were determined to define the
organisational culture that we wanted, rather than allow a culture to develop
by default, and implemented a program called Em Pasin Bilong ExxonMobil long PNG to define the values and
specific behaviours that we wanted. This
program also aimed to ensure we were helping our Papua New Guinean workforce to
succeed in a new company.

A workforce cannot function
without tools. We developed and installed a suite of business and process
control systems, developed equipment strategies for our critical equipment, and
procured, preserved and stocked the spare parts required. We negotiated a multitude
of contracts for services required to support ongoing operations – everything
from catering to lawn mowing, waste management to logistics. While seemingly
not significant, the absence of such services could prove critical.

Not
forgetting our very important customers. To avoid any potential disturbances
during startup affecting our long-term customers, we sold cargos over the first
few months on a spot basis. Product sampling and laboratory testing equipment
and procedures needed to be verified. Shipping arrangements had to be made to ensure
coverage of cargos and compatibility of ship-to-shore arrangements including surveillance,
piloting, tug assistance in berthing, and line handling.

While all of this work was progressing,
construction was being finalised and the startup processes initiated. Here, our
one-team approach really delivered. We embedded some of the operations team
members in the commissioning and startup teams, and walk-downs of equipment and
procedures were completed on a tripartite basis – Contractors, Project and
Operations. The result of this strong alignment was fewer punchlist items,
rapid closeout of items, and a smooth startup.

When we “pushed the start button”
we did have an essentially trouble-free startup. Aside from the preparations already
mentioned and others, we had the benefit of early gas from the Kutubu oil
fields to allow commissioning and startup at Hides ahead of bringing the new
Hides wells on-line, and likewise the gas from Kutubu allowed early defrost and
cool-down activities to be completed at the LNG Plant.

Here’s a short video clip of the
button being pushed for the first time – to load our first ever cargo.

A wonderful moment in our
history.

So what changes now that we are
in production?

The most obvious change is that with
the end of construction comes a reduction in employment and business opportunities.
People who have worked on the Project have
all acquired or improved their skills and gained valuable work experience.

We provided personal viability
training to help workers recognise and market their skills and other assets and
where possible we phased the release of workers. Many have successfully
transitioned into other formal employment, while others have returned to traditional
pursuits.

The Project-established
Enterprise Centre has helped set landowner companies and other local businesses
up for success with training, mentoring and operational assessment programs. While
construction support business opportunities have declined, it is pleasing to
see a number of the landowner companies continue to prosper and diversify. We
hope that other companies in PNG will step up and support the continuation of
the Enterprise Centre to build capacity of small and medium enterprises in PNG.

One critical aspect of the
Project that has yet to be completed is the identification of Project
beneficiaries from the Project areas. We will continue to offer support to the
Department of Petroleum and Energy to expedite completion of this work. We
recognise the importance to landowners of the government meeting its
commitments under the various Benefit Sharing Agreements, and will offer our
support to ensure this is achieved.

Even though we are now well and
truly into production, our presence in Papua New Guinea does not stop here – we
want to build upon the legacy that we have all worked hard to build.

We are currently in the midst of
the Lender Operational Completion Test, which is how the Lenders – the group of
banks and export credit agencies that funded a large portion of the cost of the
PNG LNG Project – test our readiness and reliability over a period of 120 days
against a defined set of performance criteria.

We will continue to explore for additional
resources to meet the growing LNG demand of the Asian market, as well as the
demands locally in Papua New Guinea.

We have an active exploration program
in PNG. Over the last half decade or so, ExxonMobil, with its JV partners, have
invested over $400 million in exploration.

We are currently drilling the
Hides Deep well, and have other exploration activities planned in the Fold Belt
trend.

We will continue to evaluate
opportunities for expansion, both incremental debottlenecking of existing and
additional facilities, leveraging the investment we have already made. The
performance of the Foundation Project facilities is encouraging in terms of demonstrated
capacity.

The first challenge, though, for
any development is the accumulation of sufficient proved reserves to underpin
expansion and to this end we have a number of activities underway.

It is important to recognise that
PNG is a high cost, high risk, and technically challenging environment. The incentives
for exploration and development must continue to recognise this fact to ensure that
Papua New Guinea remains globally competitive.

As we continue to explore for new
opportunities in Papua New Guinea, we can build upon our lessons learned during
the development of the PNG LNG Project – and I can assure you we learned a
lot.

While ExxonMobil has nine decades
of experience in PNG by the time construction work on the Project began, this Project
was well beyond what we had ever done before in PNG.

We found out very quickly that
Papua New Guinea wouldn’t simply adapt to the way that ExxonMobil does business
– we had to adapt some of our proven processes and develop plans to fit the
local context and challenges. Having said that, we always remained true to our
core values and beliefs.

It took a team of dedicated
people to work through the complexities, and we were not afraid to be flexible
if there was a demonstrated need to do so.

A “one integrated team” approach
was critical to our success. Success in one part of the Project without the
other was never going to deliver the Project on time and budget.

Industry, government and
community came together on the PNG LNG Project in a way that does not appear to
have happened before in Papua New Guinea, at least not in recent times. The
importance of this Project for the economic future of the nation was clearly broadly
recognised.

The physical challenges of the
Project were so immense that it simply would have been impossible to deliver
without a rock solid working partnership between our organisation, our
co-venture partners, and the Papua New Guinean Government.

Long-term security of the Project
depends on our relationship with the traditional owners of the land on which we
operate and with the government of PNG. To this end we understand the
importance of transparent dealings and will continue to support government efforts
to ensure that clan vetting is completed in a timely manner, and that PNG’s
application for membership of the Extractive Industries Transparency Initiative
is successful. For our part, we will continue to work to be seen as a good
neighbour in the communities in which we operate.

Ladies and gentlemen, once again
I express my gratitude for being given the opportunity to speak to you all
today and to share the PNG LNG story with you. It has been a privilege to work
on this Project and is an experience I will treasure when I retire at the end
of January 2015.

The PNG LNG Project is a story
about the power of people and of overcoming challenges.